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How lenders use business credit scores

Capitalise Sep 13, 2023

Lenders use business credit scores as a way to assess the creditworthiness of a business when considering loan applications or extending credit. Just like personal credit scores reflect an individual's financial history and reliability, business credit scores provide lenders with insight into a company's financial behaviour and ability to manage debt. Here's how lenders use business credit scores:


Initial assessment

When a business applies for a loan, the lender will typically run a credit search on the business. Experian is the credit bureau used by 90% of lenders and suppliers, so it’s important to ensure that you have a good Experian business credit score. This initial assessment helps lenders quickly gauge the risk associated with lending to the business. The majority of lenders will have a minimum hurdle they will set for a business credit score, if the business doesn’t meet this hurdle, they will be automatically declined. Having a good business credit score will ensure that your business can get its foot through the door when applying for a business loan


Risk assessment

Business credit scores help lenders assess the level of risk involved in extending credit to a particular business. A higher business credit score indicates a lower risk of default, while a lower score suggests a higher risk. Lenders use these scores to determine whether the business is likely to repay the loan on time and in full.


Loan approval and terms

A good business credit score can positively influence a lender's decision to approve a loan application and the terms offered. Businesses with higher credit scores are more likely to be offered favourable terms, such as a longer repayment period, lower interest rates, and higher borrowing limits. On the other hand, businesses with lower credit scores may face challenges in obtaining financing, or may receive more expensive interest rates and shorter term lengths to account for the increased risk for the lender. 


Credit limits

For businesses seeking a revolving line of credit, a higher business credit score can lead to higher credit limits. Businesses with greater access to credit will be able to manage cash flow effectively, making a good business credit score important for a business’ financial stability. 


Loan amounts

Business credit scores also influence the maximum loan amount a lender is willing to offer. A higher credit score may lead to larger loan approvals, giving businesses the resources they need to invest in growth and expansion. 


Business credit scores play an integral part in most lender’s decision making processes, so maintaining a strong business credit score is necessary if you’re looking for financing. Regularly monitoring your business credit score and improving it where possible can lead to better financial opportunities if you're trying to get a business loan

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